The Hillary Clinton View of Life Insurance and Annuities

life insurance and annuitiesHillary Clinton is embroiled in controversies over using her own email service. It would benefit the voting public if we could see what really happened. What were the actual advantages and what are the detriments for using her own email exchange. We will likely never know.

Unfortunately, working with life insurance and annuities can feel as though the same problem exists. Can we get all the facts? Is it possible to make a clear decision? Will we ever know?

Before investing in any product for any client in Colorado Springs or Denver, CO I would like to put down the numbers and create projections with the possible returns, taxes, fees, and compare them with other investments.

First, let me say that I am not licensed to sell, nor do I sell any of the products. I am writing this article based on a New York Times article “Getting the Full Picture on Annuities and Insurance” By Paul Sullivan, Published: May 10, 2013

My wife and I both own whole life insurance and we actively borrow against it to make other investments. First, we own whole life insurance because it defers taxes. Second, since my income is tied to the stock market, I use it as an allocation to bonds. Third, as I mentioned, I actively borrow against the investment to make other investments.

That said, I don’t sell insurance, nor is the strategy my wife and I employ good for everyone.  More specifically, I want to address the lure of tax-deferred savings, how should people weigh that against the risks and downsides of insurance and annuities?

Insurance companies are very good; they have a lot of money and target the market for what is needed. Currently, that means promoting products for their tax benefits. As a result, buyers must beware.

  • If you believe in the virtue of KEEP it SIMPLE, then annuities and life insurance are certainly not for you, despite what the benefits may be.
  • If you have ever read a prospectus, or policy contract, you know trying to find what the fees are, is difficult.
  • For the basic tax deferral qualities, you can go to companies, get annuities without the guarantees and still get the tax benefits without high fees.
  • When avoiding taxes is important, especially high taxing states like California, Massachusetts and New York, stripping down low cost annuities may be beneficial.
  • If you withdraw money before the contract matures, surrender fees reduce the withdrawal amount. This does not mean you can’t withdraw money from the account, because you often can withdraw up to 10% without fees, it is just best to plan ahead and avoid these fees if possible.
  • Also, fees for annuities kick in with the added bells and whistles. These features may include a guaranteed, minimum payout. As a result, the value of the tax deferral is reduced.

Let’s look at some benefits.

  • Both annuities and life insurance typically provide death benefits. That is they provide money to your beneficiaries upon death. It is worthwhile considering the length of time money is invested, and whether it will be used as part of an estate plan.
  • Annuities and life insurance can grow tax deferred, just like a ROTH or an IRA. This is very beneficial, especially if you have maxed out contributions to ROTH or IRA. In the case of an annuity, however, when you make the withdrawal, it is at the income tax rate. Someone investing for the next twenty years may be better off investing in something that they are just charged with a capital gains rate. Capital gains rate may be 50% less than ones income tax rate.

When evaluating annuities and life insurance, there are benefits to these products. To understand the benefits, put the numbers down on paper and compare the returns, costs and taxes between now and when you will use the money. Unfortunately, the process may be as difficult as trying to determine whether Hillary Clinton hid emails.

To learn more about James Cornehlsen, visit him at www.Capstoneinvest.com.

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